Keith Hudson's Musings

War of the worlds

Not H. G. Wells’ book, but an invisible major war that is now going on between the world of governments and the world of multinational corporations. Concerning how much the latter are taxed.

Quite why companies should be taxed — other than being a bright idea occurring to one Finance Minister many years ago as something worth raiding — I don’t know. As it penalises the shareholders of businesses and its workers, who are both already taxed according to their income, there seems no point in trying to squeeze more out of them. There’s only a certain amount that can be taxed — and for the country to remain a viable economy — so having three different taxes is really only swings and roundabouts. Still, once instituted, such unnecessary complexity gives more jobs to the bureaucrats so we’ll never have any taxation reform until there’s a catastrophe which gives the opportunity.

I’ve written about this many times before but the matter is important enough to raise again since coming across a few figures. Which are — since 2012, 22 major American corporations have set up headquarters in other countries because of high corporate taxation — 35% centrally and 5% by the individual state. Some have come to England, where the corporate tax rate is 18%, others to Ireland where it’s 12.5%, others to places designated as ‘tax havens’ where, tax is even lower.

Attempts have been made by governments at G20 level and also suggested by the OECD levels to regularise corporate tax rates between different countries. But, in truth, they’ve been feeble attempts because too many of the advanced countries — such as ours — don’t really want competition to stop.

Although it’s a serious enough war between governments and corporations it’s even more serious between governments themselves. Whereas corporations fight the war with governments — and between themselves — in order to save money for their shareholders, governments fight competitive wars between themselves because the powerful instinct of territorial imperative is also in action. Wherever a group, or a culture, or a country has a boundary its leaders find it innately impossible not to maintain it.

Although the war between governments and corporations is serious enough i isn’t deadly. Corporations don’t want to defeat governments — just to hone them down to an efficient size. As for governments themselves they’re not really fighting the corporations. They are attempting to welcome them with low taxes. Far better for a country to have many foreign corporations paying low taxes based in its domain than in having few of them — perhaps even only home-grown ones — paying high taxes.

This is not a war with a clear winner. It’s rather more a developing historical situation where a balance of power will be reached. However, although corporations are going to go through huge changes in the coming decades it would be reasonable to guess that governments will change a great deal more. They’ll have to be a great deal less expensive to run than now, and far more efficient.

Hopefully, there will be plenty of proxy wars — such as World Soccer Cups and so on — that will take care of the physical competition between governments. It is significant that all advanced countries are finding it difficult, if not impossible, to recruit enough competent young men into their armed forces — surely the sine qua non of the modern nation-state as presently contemplated.